The US thinks of itself as the defender of the rules-based international order. On the security front, President Joe Biden’s administration has performed extraordinarily, leading the G7, Nato and close allies in a united response to Russia and other ‘western’ challenges, including through strong multilateral sanctions.
But when it comes to international economic policy, an area also critical for US national security, America is often not acting as a leader nor paying sufficient attention to foreign views. The US needs to invest more in this area.
To its credit, the administration has commendably used economic engagement with China to put a floor under US-China tensions. But from a broader international economic perspective, America is increasingly viewed as an uncertain, unreliable partner. Today’s newspapers are filled with questions about whether the US will deliver on military and economic aid to Ukraine.
Trade and geopolitics
The US, having led global trade liberalisation in past decades, is now seen as seeking to gut the World Trade Organization, questioning its openness despite the enormous benefits it delivers and blaming globalisation for hollowing out the middle class.
Many non-aligned countries, especially in Asia, don’t want to be put in a position of choosing between the US and China, but quietly look to America as a counterweight to Chinese bullying. Asia especially views trade liberalisation as having lifted billions from poverty. China is moving aggressively to expand trade relations throughout the region, which increasingly lives in the country’s enormous economic shadow.
The US’s withdrawal from the Trans-Pacific Partnership in 2017 was a colossal geostrategic failure. That failure was compounded by the Biden’s administration’s suspension of talks on the Indo-Pacific Economic Framework’s trade pillar and withdrawal of support from the WTO’s e-commerce initiative. In Europe, Buy American provisions and tariffs, especially for ‘national security’ reasons, are seen as protectionist.
Emerging markets, climate change and the IMF
Climate is rightly viewed as humankind’s greatest challenge. The Biden administration, to its huge credit, secured passage of the Inflation Reduction Act in 2022, which will contribute towards meeting the goals of the 2015 Paris agreement. But the US remains a huge carbon dioxide emitter and there is little prospect for a carbon tax.
Emerging markets and developing countries face staggering needs. The Independent Experts Group commissioned by the G20 Indian presidency argued that $500bn in additional annual official external finance is needed by 2030 and multilateral development banks should provide $260bn of this.
The US rightly underscores the critical role the World Bank and other MDBs should play in addressing climate change. Accordingly, it emphasises revamping the MDB capital adequacy framework, balance sheet optimisation, guarantees and other innovative financing. The US also reasonably wants to see improved MDB climate lending practices that reduce emissions. But these efforts will hardly suffice. Various estimates suggest balance sheet optimisation will yield an added $20bn in annual lending. If the US wishes to match rhetoric with reality, there needs to be large general capital increases.
At the International Monetary Fund, the US supported a capital increase that maintained constant voting shares for all, holding down several significantly underrepresented countries (including China, Indonesia, India and Vietnam). The US was obviously motivated by domestic politics regarding China and also reasonably argued the country didn’t deserve more voting power, given recalcitrance in providing low-income country debt relief. But it is inconsistent for the US to express concern about the global economy drifting towards regionalism and away from the IMF’s central role as a balance of payments lender, while avoiding share adjustments.
The US historically has not been forthcoming in furnishing the Fund with subsidy resources to support LIC lending, mainly for Africa, to continue at 0%, despite a recent welcome modest contribution.
The US has yet to sign onto the Organisation for Economic Co-operation and Development’s landmark global tax framework. Congress is jeopardising funding for one of the George W. Bush administration’s finest initiatives – the President’s Emergency Plan for AIDS Relief, credited with having saved over 20m lives from HIV/AIDS in low- and middle-income countries.
These are a few examples.
Yet, the odds seemed stacked against the US exercising robust international economic leadership.
Swaths of the Republican party embody isolationist sentiments. Both political parties question the wisdom of liberal trade. Even politicians inclined to support international economic leadership often do so meekly, wondering what’s in it at home for their futures. Dysfunction prevents balanced discourse and action, while US presidential elections and a possible Donald Trump return loom.
The US budgetary situation also inhibits international economic leadership. With large deficits and a soaring interest bill, there is little fiscal space for America to put its money where its mouth is on international economic challenges.
The US must be a more reliable international economic partner. It needs to: deliver on commitments; forge a new consensus on trade that supports openness but helps workers cope with adjustment costs; and reprioritise resources that would allow a significant boost in MDB resources for climate and increased IMF/World Bank support for grants and concessional resources.
America’s national security, leadership and worldwide credibility would be greatly strengthened if it invested more heavily in international economic policy.
Mark Sobel is US Chair of OMFIF.